Thursday, November 5, 2009

Tangible Assets For Thursday

Plenty to get to this evening, but I think everyone should take a moment to think about the people that have been attacked at Ft. Hood in Texas. The details are slow to come out, and all are bad, so please keep the military and non military folks at Ft. Hood in your thoughts tonight.

As an aside, I think my posts have been missing at Seeking Alpha because they are hard to categorize as I tend to cover a ton of ground. I hope the followers over at SA continue to find the site here at the main ground.

Ford Favorable Rating Through the Roof Due to Handout Refusal
Nobody likes a loser and nobody can stand a loser that get bailed out. Consider the case of Ford (F) motor vehicles and their latest showing in a Rasmussen poll:
Ford Favor ables Continue to Rise As GM, Chrysler Slip
On the heels of Ford’s better-than-expected third quarter profits and its promise of solid profitability by 2011, 68% of Americans adults hold a favorable opinion of the one company that passed on a government bailout. Ford continues to far outdistance public perceptions of General Motors and Chrysler.
This is both expected and welcome.

Ratings Breakdown
FORD: Favorable 68% Unfavorable 24%
GM: Favorable 34% Unfavorable 56%
Chrysler: Favorable 29% Unfavorable 63%

Ford has a unique chance here to capture the hearts and minds of the American auto market. By refusing a bailout they will command brand loyalty and pride of prospective buyers. If you recall I wrote a promotional piece for Ford a while back:
"Ford Motor Company has long been a leader in US automobile manufacturing. While the entire industry has fallen on hard times, we at Ford want the American public to know that we stand behind our products and our warranties without the help from an already stressed taxpayer. Ford has long built the best selling truck on Earth, the F-150, which has served as the American workhorse over the years. Ford has also introduced new age vehicles for the new consumer including the Ford Focus, Ford Fusion, and the Ford Edge all of which are rated competitively across the industry. We at Ford do not want a handout, but we would appreciate your consideration when buying a vehicle. As always, Ford is tough."
A possible problem for Ford could that Ford Credit (their financing wing) will have to battle perpetual basket case GMAC on uneven terms. Even in the face of this I think Ford is in good shape. I believe people would pay a little more for a car from a company that is not on the government handout sheet. Here's hoping for Ford.
Disclosure: No position in any stock mentioned

Fannie Mae and the Policy of "Extend and Pretend"
I have spilled enough pixels highlighting (lowlighting?) the various shortcomings of Fannie Mae (FNM). Tonight lets take a loo at their latest losses and plans for the future.

First up, Fannie earnings, or lack thereof (via Zero Hedge):
Fannie Mae Reports Massive Q3 Loss, Asks For Another $15 Billion From Government As It Is Set To Become Largest US Landlord
The latest particular does of lunacy and economic calamity coming out of the intellectual midgets at Fannie and the FHA should be sufficient to push the market well into 1,100 territory tomorrow. FNM's loss for Q3 is $18.9 billion, up from $14.8 billion in Q2, a time when the market was up a good 15%: ever wonder who keeps on subsidizing those gain? That's right - you. Credit-related expenses increased to $22 billion in Q3 from $18.8 billion in Q2. Oh, and Fannie now wants another $15 billion rescue from the Treasury (which is having some troubles with getting that pesky debt ceiling raised to one googol) so it can continue with its plan of keeping shadow inventory away from the market, rent foreclosed houses to their owners at staggeringly low rates, and continue the pretence that bank's balance sheets are well capitalized. Seriously, is the twilight zone any more palatable if one just drinks the Kool Aid or takes some crazy/stupid pills? We are ready and willing for the plunge.
For more on the Fannie rental plans:
Fannie Mae to rent out homes instead foreclosing
The rental program is designed to help homeowners who don't qualify for a loan modification under the Obama administration's plan, but still want to remain in their homes. Fannie Mae is not planning to market the homes for sale during the one-year rental period.

Fannie Mae has hired an outside company, which officials declined to identify, to manage the properties.

To qualify, homeowners have to live in the home as their primary residence and prove that they can afford the market rent, which would be determined by the management company. The rent can't be more than 31 percent of their pretax income.
Unreal. Just Unreal. Did you know that in most states Fannie rental is in fact illegal? (sarcasm on)

A company that cannot manage risk will be able to manage rental units no doubt. 31% pretax income on rent? Only nuts will go for this as rents are nowhere near that level. Have we discovered a cute way to circumvent the owners equivalent rent component of the CPI?

I will be honest, I had planned to write about this story all night, but Karl Denninger at Market Ticker has said everything I had thought about all day so well it is really not worth doing another run down. Hazards of having to work all day, you get to the party late! From Karl:
-This has exactly nothing to do with helping "homeowners." It is entirely about Fannie not having to recognize the written-down value of these houses - that is, allowing them to hold the "mark" on the loan at it's original value, rather than recognize the loss.
-Oh, so the rent can't be more than 31% of their pretax income, but the original note's payment was, right? After all, if it wasn't then the homeowner wouldn't have been in foreclosure in the first place!
-That's the key paragraph, and tells you that:
This is simply an attempt to avoid mark-to-market on the properties.
The rent charged will be insufficient to meet the PITI (Principal, Interest, Taxes and Insurance) on the original note, as by definition if it could the "homeowner" wouldn't have defaulted in the first place!
That covers it!

So as the housing market "rebounds" and excess inventory is "worked off" you will at least be of the understanding that there are two worlds out there, the real one and the projected one.
Disclosure: Never have and never will hold any FNM related stocks or anything related to it.

Tangible Assets
With the markets on fire since March and the calls for recovery singing loud and proud, what is the move in gold trying to say?

I have written before about the Repudiation of US Financial Engineering and it applies across the pond as well.

The UK seems eager and ready to depress the "print" button by Quantitative Easing (QE) in an all out effort to get some kind of economic activity going that will magically pay for all the magic money:
Bank of England expands money-printing programme to £200bn to fight downturn
The unconventional plan, which is known as quantitative easing (QE) and was first adopted by the MPC in March, will now see the Bank buy a total of £200bn of UK government bonds, or gilts, and other assets from from financial institutions in the hope the money spent will be invested in the wider economy. Some economists expected the programme to be increased to £225bn.

Experts admit that it's hard to judge whether the policy is working, but with the economy still languishing in recession last quarter, most reckon it's worth expanding.

British manufacturing output bounces back "The UK economy is still in the High Dependency Unit, but without QE it might have been in Intensive Care, or worse," said Stephen Boyle, head of economics at Royal Bank of Scotland. "The extension of the Bank's asset purchase scheme today reminds us that the risks of doing too little considerably outweigh the risks of doing too much."
Choice quotes!
No idea if it's working, but whatever, it's worth doing more of it just to see what happens. Hard to argue with that logic.

Now just in case you think there are no sharp observers on CNBC, you just have to be awake at the right time.

As I was sipping my one 1/2 cup of coffee of the day this morning at 5am, I flipped to CNBC and heard rays of light an sense being spoken! The speaker was Stephen Gallo from Schneider Foreign Exchange and this guy pulled no punches on the money printing presses running the world over, no embed, sorry but go here. Stephen Gallo is my new hero!

How about fraud? It was all cleaned up right? Not so much:
More Insider Trading (UUP Options)
The Insider Trading Alarm Bells Grow Louder
Hint: Anytime you want more, it will be there.

Gold is not fungible, and as I and my friend at The Golden Truth observed in India comments about gold as the "Ultimate Currency".

But gold is in a bubble phase, right? Jesse's Americain Cafe reminds us what a bubble looks like:
How Can You Tell When Gold is in a Bubble?
When the junior miners start showing these kinds of returns, you might be in a bubble.
We're nowhere near that point yet:

Not really there yet!

As a molecular biologist I have a special affinity for gold and silver. No two other metals have the ability to be used in biological settings as these two. The reasons are many and suffice to say there will not be replacements.

An example of the kind of results I have seen in scientific journals and research reports for biotechnology concerning gold and silver applications:
Golden Nanocages Could Deliver Cancer Drugs to Tumors
Cancer treatment in the future could have dramatically reduced side effects if new nanotechnology research proves useful. Heat-sensitive nanoparticles might be able to deliver drugs to a targeted location in the body—to a tumor, say—and release them on cue, a sought-after goal of biomedical research.

One research team has developed nanoparticle cages that can be stuffed with tiny amounts of drugs that are only released on demand. These “nanocages” are cubes of gold, with sides about 50-billionths of a meter long and holes at each corner. They are easily made, using silver particles as a mold, and then coated with strands of a smart polymer. The polymer strands are normally extended and bushy and cover the holes in the cube. But when heated the strands collapse, leaving the holes open and allowing the drug inside to escape [The New York Times]. The researchers say they can engineer the nanocages to stick to tumors.
Now Discover magazine is not a high end science journal but I would not bore you with a PNAS submission or worse a PUBMED article.
Disclosure: Positions in GLD, SLV and physical gold and silver bullion.

Unemployment Numbers
Tomorrow is the latest UE numbers which are expected to show great progress in job losses of only about 175k. Great if you are not number 174,999 I guess!

I was thinking why not count the extended benefit UE users as "government employees" and then UE really drops!

I found this cartoon on the Wikipedia entry for Unemployment circa 1837:

the words are very hard to make out, but my best guess from left to right:
-"I have no money and cannot get any work" (Man in green)
-"Father cant I have a piece of bread?" (girl in yellow dress)
-"I say Father can you get some specie claws" (boy in blue and I have no ideas????)
-"I am so hungry" (boy in brown)
-"My dear cannot you contrive to get some feed for the children, I care not for myself" (Lady in red with baby)
-"I say Sam I wonder where we are to get out COSTS (bold)" (Men in Blue with RENT signs, ominous, no way!!!)

Really puts things in perspective, no?

Have a good night.


KLo said...

Wow, that cartoon is amazing!

getyourselfconnected said...

That cartoon hit me hard as well, so glad you stopped by!

Dave in Denver said...

Hey gyc. re: using material from Jesse's blog, as long as you cite him as the source, he won't care. In fact, he would be flattered.

Actually, that particular junior mining stock chart came from a colleague of ours, who emailed it around to a few of us yesterday, and it came from Stewart Thomson's subscription report (I don't subscribe to it, but I saw he was the source on the email) LOL.

Dave in Denver said...

btw, here's jesse's email contact from the profile on his blog, if you ever want to verify with him that it's okay to use material from his blog:

I've always assumed the blog etiquette was that you can use any material from another blog as long as you "hat tip" or cite the source.

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